Osborne

29th November 2011

Missing deficit and national debt targets

Actually this was always likely and has nothing to do with the austerity/stimulus debate. Forecasts were based by the then Chancellor Alistair Darling on estimates on UK economic growth in the region of 3 to 3.5%. No political party and few economists challenged this but it was never realistic and bordered on misrepresentation. Back on April 26th 2010 I pointed out what was always likely to be an inconvenient truth.

"Official forecasts for growth in the UK economy are very optimistic, what will happen if these are not achieved in reality?"

We can now look back and see that not only have they not been achieved that it looks very unlikely they will be achieved in 2012 either. Accordingly tax receipts will underperform and spending will be higher raising the fiscal/budget deficit. As we move forwards in time we will see a stronger and stronger effect from this. Actually a stronger effect than anything likely to be announced today.

The structural deficit

Politician's love concepts such as a structural deficit as they are theoretical concepts (and accordingly open to manipulation) and they invariably give a lower number than the main one. Perfect! (For them not the taxpayer who has to finance the actual larger one). For those wondering what a structural deficit is then the Financial Times defines it thus.

"A budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors"

What can politician's manipulate here? Well how about "fundamental imbalance" or "one-off" or "short-term"? So plenty of scope and I counsel plenty of caution with the proliferation of structural deficit numbers that will be produced today. If you are looking for something to do you might like to count how many "experts" point out the analysis above or whether these "experts" join in with the obfuscation.

Sharper eyed readers will have spotted that the first issue I have outlined reinforces the second and accordingly has already taken place. But in addition I expect the game to be played again today.